Tag Archives: mortgages

Many don’t seem to like a 50 year mortgage; some lenders already offer a 40 year mortgage

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As people reacted – mostly negatively, from what I saw – to the possibilities of 50 year mortgages in the United States, one article noted that 40 year mortgages has a history and can be obtained now:

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I remember a time when a 40-year mortgage — and a 50-year adjustable rate mortgage — built some buzz back around 2006 and 2007 for people who were struggling to buy a home. It didn’t work out well if you had to sell when home prices collapsed.

The 40-year mortgage has a history going back to the early 1980s, according to an earlier report in the Detroit Free Press, part of the USA TODAY Network, when 18% fixed-interest rates were squeezing consumers out of buying homes. It never proved to be the most popular product…

If you shop around, some lenders are offering 40-year mortgages now.

Rocket Mortgage notes online that the Detroit-based giant offers a 40-year mortgage with the first 10 years being interest-only payments. These mortgages can be available for loan amounts between $125,000 to $2 million.

I wonder how many people apply for and receive 40 year mortgages.

Reading the reactions to the idea of a 50 year mortgage, I was struck by how much of the conversation was dominated by financial details. How much equity would a homeowner have after 20 years? When would the interest parts of the payment taper off compared to paying down principal? How would interest rates be different for a 50 year loan? I should not be surprised given how much homeownership is now seen in the United States as a financial investment. It is a tool to build wealth, perhaps the biggest tool most people will have.

But homes are about more than that. Americans have ideas about the virtues of owning a home compared to being a renter. A homeowner might feel differently and act differently regarding their property if they have a mortgage. Numerous neighborhoods and communities are structured around homeownership (such as many suburbs). Having a stable and affordable residence can help contribute to numerous positive outcomes.

Are we at a stage when public discussions about housing then are exclusively or are primarily about the finances of owning a home – which are certainly important – and not any influential factors that might encourage or discourage people from owning homes in the United States?

Mortgage fraud rates very low – but on the rise?

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With cases of mortgage fraud in the news, one source says it is rare:

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About 1 in 116 mortgage applications contained fraud in the second quarter of 2025, according to Cotality’s National Mortgage Application Fraud Risk Index.

The data shows the two riskiest investments for mortgage fraud are investment properties and multiunit properties.

This is less than 1%.

But the same source says mortgage fraud is on the rise:

“The increase in the fraud risk can partly be attributed to the volatility starting to be seen in the real estate market,” Matt Seguin, senior principal of mortgage fraud solutions, said in the Cotality report. “Interest rate cuts haven’t come at the rate expected over the last year, so purchase transactions, which, historically speaking, have higher fraud risk, continue to represent almost 70% of the applications seen by Cotality.”

Cotality analyzed data in six categories of mortgage fraud: identity, transaction, property, income, occupancy, and undisclosed real estate. The research found that every category except occupancy saw an increase in the second quarter.

The largest year-over-year increases were in undisclosed real estate debt and transaction fraud risk. Undisclosed real estate debt rose 12% this year, compared with a 5.9% decline year over year in 2024. Transaction fraud risk increased 6.2% this year, following a 4.9% increase last year.

Rare and relatively small increases in the last year.

Perhaps the problem of mortgage fraud would sound more serious if this 1 in 116 mortgages was connected to the cumulative money involved. Each mortgage is connected to a good amount of money. Add all the fraud up and how much money are we talking about? Is it enough money for financial institutions or the general public to pay attention to?

Another way to think about this would be to compare fraud rates here with fraud rates with other financial instruments. How about credit card debt? Auto loans? Home equity loans? And so on. Mortgage fraud is low but perhaps it is even lower than in other areas or higher than others.

Regardless of the numbers, absolute or otherwise, fraud is still fraud. But whether it is perceived as a social problem might take more than just reporting the numbers or putting them in context.

The percent of income Cook County residents pay to own their home

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How much does it cost to be a homeowner in Cook County?

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Homeownership expenses — including typical monthly mortgage payments, homeowners and mortgage insurance and property taxes — accounted for 29.2% of the average income earned by a Cook County resident as of the middle of this year, up from the 23.2% historical average based on data collected between 2005 to 2025, according to ATTOM, a national property data provider.

That is lower than the 33.7% national average and slightly higher than the 28% typically recommended by mortgage lenders, the data shows.

For the average Chicago resident, 42% of their mortgage payment is for expenses such as property taxes and insurance, marking it the fourth-highest share in major markets across the country, according to Andy Walden, head of mortgage and housing market research for Intercontinental Exchange, a data and financial technology firm. This is in large part, he said, because of property taxes.

This particular article suggests these costs are high for those who want to start a family; they may be able to purchase a home but there is not much left over after that point. The figures above help provide context for the 29.2% homeownership cost:

  1. This is higher than the average in the past. Homeowners in Cook County are now paying more per month than previously.
  2. The figure it higher than the 28% lenders might recommend.
  3. But the Cook County percentage is lower than the national percentage.
  4. And out of that overall percentage, Chicagoans tend to pay more for property taxes and insurance.

And a little more context: the homeownership rate in Cook County is about 62.5%.

All interesting information. Owning a home takes resources for purchasing it and maintaining it. The same lending practices that make it possible to get a mortgage for 30 years also mean costs for that long. But could the issue be something different: the costs of having children? How have those costs changed over time?

The Chicago area is often regarded as having a medium cost of living. Big cities in the Northeast and West cost more, places in the South and Midwest cost less. People living in these different contexts adjust. With the relative costs of living, how much does it differ to raise children in each place?

Homeownership is one of the biggest financial investments that a person or household will make. How many Americans now experience or believe that pursuing homeownership, a vital part of the American Dream, impedes their ability to pursue having kids?

HOA and condo association fees as part of growing mortgage costs

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Part of the rising mortgage costs in the United States is due to fees residents pay to homeowners’ and condo associations:

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Rising home insurance premiums and homeowners association fees have also contributed to growing monthly expenses. The median annual cost of property insurance increased by 5.3 percent last year, the Census survey found, with bigger increases for larger homes. Nearly a quarter of all U.S. homeowners paid fees to a condo or homeowners association last year, at a median cost of $135. In Nevada, Florida and Arizona, 45 to 50 percent of households paid such a fee.

The Census report has more details. Where do more residents pay association fees?

Some states like Arizona, Florida, and Nevada that typically attract a lot of retirees to planned communities had higher proportions of homeowners who reported paying condo/HOA fees.

Others with among the smallest shares: Maine, North Dakota, Rhode Island, South Dakota, and Wisconsin.

The prevalence of these associations differs quite a bit across contexts. And even within places with more associations, some people may more than others:

The amount of condo and HOA fees differed widely between and within states. In 2024, about 5.6 million or 26% of homes paid less than $50 a month and about 3 million homes paid more than $500 a month.

The national median (half were less and half more) monthly fee was $135. But a large share of homeowners in some states — most notably New York (64%) — reported paying more than $500. So did about half of homeowners in the District of Columbia and in Hawaii. 

These fees could be going up for multiple reasons:

  1. Increased repair and maintenance costs. Replacing roofs or maintaining common areas or other regular duties of these associations cost more, just as almost everything costs more in recent years.
  2. Increased insurance costs. As homeowner’s insurance goes up, so would insurance for associations and larger buildings.
  3. With the cost of current needs going up, this could also affect projections about the future. As associations think about their reserves and future outlays, they may need more to keep up with in order to have a required and/or prudent amount on hand.

It may be difficult to reduce these costs easily as these associations have specific responsibilities to residents.

The “natural flow” of people toward renting rather than homeownership?

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In discussing the construction of a new suburban apartment building, one person describes the demand for the apartments:

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“We have seen the rent increases in the suburban market in general have been pretty strong over the last few years,” he said. “There’s a lot of people who normally would have gone out and maybe rented for a few years and then bought a home, are not doing that. They’re staying in apartments longer.

“So you have the natural flow of new people coming in and less people walking out the door for home ownership, and a lot of that is just due to the high interest rate environment and people wanting to retain the flexibility of renting right now,” Devries explained.

Is this “natural” that more people or certain people at the moment are willing to rent compared to own? These two paragraphs mention several reasons why this shift did not just happen:

  1. Increase in rents. This means at least some apartments are available to those with the resources to pay for it.
  2. Higher mortgage rates mean homeowner’s monthly payments are higher.
  3. Renting can offer flexibility in a tight housing market or when people are feeling economic uncertainty.

These are the result of social, economic, and political forces. And I wonder if all of these people who find it “natural” to rent now would prefer to own a property. If conditions were different, would they rather purchase a home, condo, or townhome? Or what if this to-be-constructed building did not contain apartments but rather contained condos?

The “natural” flow in American life for roughly the last century has been toward single-family homes and homeownership. This takes different forms – not just homes but condos and townhouses – and may not appeal or be available to everyone. But my guess is that if the three listed conditions above were more favorable toward purchasing units, that is what more people would seek and developers/builders would produce.

American mobility and the Americans locked into their low mortgage rates

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Among other real estate concerns in the United States, here is one unusual feature of the current market:

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Yet despite a market full of reluctant buyers, sellers are not under pressure to drop their prices. Almost 60 percent of households have an interest rate below 4 percent, according to a study published in the Journal of Finance; selling would mean trading that low rate for a much higher one on a new purchase. Not since the 1980s, when borrowing rates soared into the double digits, have so many Americans been locked into their mortgages, said Lu Liu, an assistant professor of finance at the Wharton School at the University of Pennsylvania, and an author of the study, describing the conditions as “unprecedented.”

The implication of the argument above is that people do not want to leave a low mortgage rate for a higher mortgage rate. But this is not necessarily a new situation; mortgages rates go through cycles. Is this just about mortgage rates or do low mortgage rates make it easier to not move due to other reasons? American geographic mobility is low.

Presumably, many people have a price or conditions under which they would move even with a low mortgage. What exactly would it take: a new job that offers 10% or more compensation? An unbelievable housing deal elsewhere? A perception that where they are does not have a good future?

Imagine this scenario: mortgage rates slowly decrease in the next year or two, getting back to 3-5%. Would this significantly increase mobility? It could put more homes on the market as homeowners might be more willing to see what they could get. But would this significantly change the calculus of moving in the first place?

My suspicion is that this is a bigger issue that just mortgage rates. With higher rates, some people will still move: those with resources and opportunities they feel they cannot pass up. With lower rates, more people will feel they could move. But geographic mobility is already low compared to the postwar years and it could take a lot more than mortgages to change this.

Banks and “extend and pretend” for office properties

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With some companies and organizations falling behind on their commercial mortgages, some banks are waiting and looking for ways to get out of the loans:

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Some Wall Street banks, worried that landlords of vacant and struggling office buildings won’t be able to pay off their mortgages, have begun offloading their portfolios of commercial real estate loans hoping to cut their losses…

But these steps indicate a grudging acceptance by some lenders that the banking industry’s strategy of “extend and pretend” is running out of steam, and that many property owners — especially owners of office buildings — are going to default on mortgages. That means big losses for lenders are inevitable and bank earnings will suffer.

Banks regularly “extend” the time that struggling property owners have to find rent-paying tenants for their half-empty office buildings, and “pretend” that the extensions will allow landlords to get their finances in order. Lenders also have avoided pushing property owners to renegotiate expiring loans, given today’s much higher interest rates.

But banks are acting in self-interest rather than out of pity for borrowers. Once a bank forecloses on a delinquent borrower, it faces the prospect of a theoretical loss turning into a real loss. A similar thing happens when a bank sells a delinquent loan at a substantial discount to the balance owed. In the bank’s calculus, though, taking a loss now is still better than risking a deeper hit should the situation deteriorate in the future.

Four questions come to mind:

  1. How long will banks wait before aggressively working to drop these loans? It sounds like this is happening a little bit. Is there a possible tipping point? In other words, how much “extend and pretend” is doable?
  2. How much does this behavior toward commercial tenants reflect how the same lenders or other banks treat residential loan holders? If a homeowner is not making their mortgage payments, do they get treated the same? Is the issue more of the size of these loans and not necessarily what kinds of properties are involved?
  3. Given the foreclosure crisis of the late 2000s and the COVID-19 pandemic, is it safe to assume there are plans in place if banks need to move a lot of these loans at once? Who would benefit the most from aid to get out from under a lot of commercial property losses in a short amount of time?
  4. What happens to these vacant properties in the short and long-term? How quickly can they be filled by other uses? How do these vacancies affect the communities in which they are situated?

Regional banks and commercial real estate loans

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As companies reduce their office footprint, what institutions hold many commercial real estate loans?

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US banks hold about $2.7 trillion in commercial real estate loans. The majority of that, about 80%, according to Goldman Sachs economists, is held by smaller, regional banks — the ones that the US government hasn’t classified as “too big to fail.”

Much of that debt is about to mature, and, in a troubled market, regional banks might have problems collecting on those loans. More than $2.2 trillion will come due between now and the end of 2027, according to data firm Trepp.

Fears were exacerbated last week when New York Community Bancorp (NYCB) reported a surprise loss of $252 million last quarter compared to a $172 million profit in the fourth quarter of 2022. The company also reported $552 million in loan losses, a significant increase from $62 million the prior quarter. The increase was driven partly by expected losses on commercial real estate loans, it said.

Because I know little about this, this leads to several questions:

If patterns from earlier crises hold up, does this mean that when regional banks suffer difficulties they will be gobbled up by the larger banks?

What do regional banks have more of these loans – is this more of their specialty or they are more familiar with the local markets?

Who exactly decides which financial institutions are too big to fail and at what point might these regional banks qualify?

If these are the losses of just one regional bank, what might we expect throughout the entire US within the next few years?

Lenders and commercial properties that stay vacant for a long time

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Here is one explanation of why commercial properties in the United States can stay vacant for so long:

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So if COVID isn’t to blame for all the shuttered stores, what is? Well, when a landlord doesn’t lower the rent to get a new retail tenant, it’s because that landlord can’t. The market that sets retail rents isn’t only between tenants and landlords. It’s also between landlords and the banks that finance the buildings. And the banks, in many cases, won’t let property owners lower their rents enough to fill their properties. The pandemic may have emptied out America’s storefronts, but it’s banks that are keeping them that way…

So if you’re trying to lower the rent on your retail space, your bank may say no. And even if it says yes, it might demand you pay off a chunk of the mortgage up front, to account for the way you’re lowering the building’s value by lowering its rental income. In short, reducing the rent on your storefront might land you a tenant — but it could cost you big-time with your bank.

Of course, nothing is forcing banks to be all hard-assed about it. They’re free to renegotiate or refinance the terms of mortgages, given the extraordinary downturn facing retail storefronts. In some cases, according to real-estate brokers I spoke with, banks have apparently decided not to stand in the way of landlords in San Francisco who are offering shorter-term leases and lowering retail rents anywhere from 20% to 50%. One popular restaurant space in the city’s tech-heavy South of Market neighborhood that has been dark since 2020 is finally set to reopen this year as a bar and “entertainment concept” — but only because the landlord is offering the new tenant a below-market rate and improvements to the space…

You’d think everyone involved would be motivated to fill an empty storefront — landlords aren’t making money, cities aren’t getting taxes, and the neighborhood has an eyesore. But that eyesore may actually still be profitable to the landlord and the banks. “In SoHo, something vacant isn’t necessarily vacant,” says Ortiz. “Someone’s paying rent there, and the landlord’s perfectly fine with it. It’s a vacancy to the pedestrian, but not to the landlord.”

Vacant properties can create all sorts of problems for communities. The focus on this story is on city properties but vacant properties are issues in suburbs as well. As the story suggests at the end, encouraging properties to be vacant for shorter periods of time and/or for banks to be more flexible might require some creativity.

I wonder if there is more third party actors – not the lender or the current lease holder – could do to provide solutions. Are there certain land uses that could be more temporary but fill vacant spaces? Are there agreements to be made between lenders and a tenant to make something of the property without t being a fully functioning property?

Could communities also more directly pressure lenders about vacant properties? Perhaps this happens more behind the scenes but imagine a community group organizes around asking a specific lender about a particular property in the neighborhood. They make some noise, make the lender public, ask for changes.

How low prices might need to go for unwanted downtown office spaces

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For those looking to transform American downtowns, the price of space currently zoned and intended for office space is still high:

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Investors who paid high prices for skyscrapers before the pandemic are reluctant to sell at a discount. Michael Pestronk, chief executive of Philadelphia-based apartment developer and landlord Post Brothers, said that around nine out of 10 office buildings around the U.S. that the company looks at aren’t suitable for converting to apartments, mostly because prices are too high or they still have too many tenants.

How low would prices need to go before redevelopment is attractive? How much money might previous investors be willing to accept or lose to convert structures?

There might need to be a tipping point for this to happen. Imagine a major office skyscraper is converted. Or, a certain amount of space is vacant in a single downtown. Or, a major lender accepts a loss and moves on with new plans. Or, a city decides to move with some major money. Or, one place shows this is possible.

That said, it will not only be expensive to pursue such paths but it will take time and experimentation. There may not be a single answer as cities seek different ways to fill office spaces.